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UK: Swan Turton LLP eBulletin - High Court Ruling on Purchases dressed up as Prizes: OFT v Purely Creative Ltd

29/03/2011

The High Court last month ruled for the first time on the meaning of provisions applicable to misleading promotions in the Consumer Protection from Unfair Trading Regulations 2008 (CPRs) and on what the CPRs mean by “the average consumer” and other general concepts.

The case concerned a variety of prize draw and scratch card promotions distributed through magazine and newspaper inserts as well as direct mailings. The promotions gave the impression that recipients had won a prize, when in reality the court found that the consumer was simply being offered the chance to purchase a low value item. In one example a holiday voucher was described as a prize when it would cost the consumer a significant sum actually to go on the holiday.

The CPRs outlaw unfair commercial practices. In line with the Unfair Commercials Practices Directive (2005/29/EC) which the CPRs implement in the UK, a commercial practice is unfair if it is any of the following:

•   a misleading action
•   a misleading omission
•   aggressive

In addition, Schedule 1 lists 31 banned practices which are considered to be unfair in all circumstances. Item 31, relating to misleading promotions, is as follows:

Creating the false impression that the consumer has already won, will win, or will on doing a particular act win, a prize or other equivalent benefit, when in fact either –

(a)   there is no prize or other equivalent benefit, or
(b)   taking any action in relation to claiming the prize or other equivalent benefit is subject to the consumer paying money or incurring a cost.

1.   Purchases dressed up as prizes

In a long and detailed judgment Mr Justice Briggs came to the following conclusions regarding item 31 “prize” promotions:

1.   The critical requirement in proving any breach of item 31 is that a false impression has been created.

2.   There is no breach of item 31 if the cost incurred by the consumer is clearly identified and minimal, such as buying a postage stamp or making an ordinary telephone call, if no part of it reaches the trader’s pocket, and the cost is de minimis in comparison to the value of the prize won. The judge said that he could not conceive, for example, “of any reason why a consumer who has won, say, a new car for free delivery at the consumer’s home, requires to be protected from the cost of telephoning or posting a letter to the promoter specifying his address, and a convenient time at which he will be at home in order to receive his prize.”

3.   A sufficiently clear statement of the cost or expense to be occasioned in claiming the prize may nonetheless fail to dispel a false impression that a prize has been won if, for example, the trader says nothing about the value of the prize where, in fact (but unknown to the consumer), it does not substantially exceed the cost of claiming it.

4.   The promotion doesn’t need to use the words “win” or “prize”. The question whether it conveys the impression that the consumer has won a prize or equivalent benefit is to be answered by reference to the whole of the communication including not only the words used, but its layout and get-up.

5.   Similarly, the question whether an impression that a prize or equivalent benefit has been won is falsified by a requirement that the consumer makes some payment or incurs some cost in claiming it will depend on the particular facts, both about the prize or benefit, and about the cost of claiming.

6.   A cost which is de minimis in proportion to the value of the prize will not usually falsify that impression. By contrast, a requirement for payment, all or part of which is received by the trader and used to defray the trader’s cost of both the acquisition and delivery of the prize, may falsify the impression that a prize has been won, even if its value to the consumer substantially exceeds the cost of claiming it. The consumer may in reality be buying something rather than winning it.

7.   In most of their promotions the defendants’ business model depended on a choice by the bulk of those consumers who responded to adopt one of the expensive methods of response (eg premium rate telephone call), rather than posting a letter containing one or more stamped self-addressed envelopes. The mere availability of inexpensive methods of response is not good enough if a method of claiming which is specifically identified and recommended in the relevant communication involves a cost of an amount which falsifies the impression that the consumer has won a prize.

2.   The average consumer

The CPRs involve two key people: the average consumer, who is being protected from the unfair commercial practices of the trader.

The trader is of course a specific individual or entity who is readily identifiable: “any person who in relation to a commercial practice is acting for purposes relating to his business, and anyone acting in the name of or on behalf of a trader.”

The average consumer is a fictional construct of European jurisprudence who, unlike the trader, will never be present in court at all and whose characteristics are sometimes disputed. Some of those characteristics are set out in the CPRs, including these:

1.   A consumer is any individual who in relation to a commercial practice is acting for purposes which are outside his business.

2.   In determining the effect of a commercial practice on the average consumer where the practice reaches or is addressed to a consumer or consumers account shall be taken of the material characteristics of such an average consumer including his being reasonably well informed, reasonably observant and circumspect. (NB the average consumer can of course be either male or female, despite the “his”.)

The average consumer doesn’t feature in item 31 but is a key concept when looking at the general varieties of unfair commercial practice (misleading actions or omissions or aggressive practices). In each case, for example, the practice has to cause or be likely to cause the average consumer to take a transactional decision he would not otherwise have taken.  This, as the judge explained, “reflects the commonsense proposition that the UCPD exists to protect from being misled consumers who take reasonable care of themselves, rather than the ignorant, the careless or the over-hasty consumer.”

The judge analysed this requirement in detail. The language sounds abstract but the ideas are important to understanding simple practical issues such as whether an advertiser or promoter can rely on small print. The judge found that “the question whether the average consumer would read the entirety of the (frequently very small) print of a particular promotion raises fact-intensive issues as to the application of Regulations 5 and 6 [misleading acts and omissions], rather than being capable of resolution by an invariable and irrebuttable presumption of the type contended for by the defendants.”

In one of the promotions in this case, for example, consumers could claim a cheap watch of far eastern origin (described as a “genuine Zurich” watch) by two methods, either a cheap postal method or a premium rate telephone method at a minimum BT landline cost of £8.95. Consumers also had to pay an additional £8.50 to cover delivery and insurance. The judge decided that the cost of the phone call was hidden because consumers were only told that the call might take a maximum of 6 minutes, at £1.50 per minute, when in reality all calls took only 2 seconds less than the full 6 minutes. The £8.50 was not misleadingly hidden in the small print because the relevant part of the small print was sufficiently identified by the use of a sword sign opposite the watch on the promotional letter: “where the relevant small print is both intelligible and identified by a convenient cross-reference, it is unlikely to be found to have been hidden.” (The problem with the £8.50 payment was that it was misleading to describe it as a payment for delivery and insurance when, in fact, the delivery cost was only £3.25 (post and packaging) and the defendant did not insure at all.)

3.   Transactional decisions and material information

The judge also considered two other questions of interpretation:

1.   It was common ground, accepted by the judge, that any decision with an economic consequence is a transactional decision, even if it is only a decision between doing nothing or responding to a promotion by posting a letter, making a premium rate telephone call or sending a text message. However, the judge suggested that the Commission’s guidance might be going too far in also including a decision to step into a shop after viewing an advertisement in the window.

2.   A commercial practice is a misleading omission if, amongst other things, it omits or hides material information or provides material information in a manner which is unclear, unintelligible, ambiguous or untimely. Material information will include “the information that the average consumer needs, according to the context, to take an informed transactional decision.” The judge held that this should not be read too literally as implying something approaching an utmost good faith obligation: “The question is not whether the omitted information would assist, or be relevant, but whether its provision is necessary to enable the average consumer to take an informed transactional decision.”

4.   Conclusion

The CPRs are, in practice, enforced primarily by the ASA via the CAP Code and BCAP Code. The ASA’s self-regulatory powers are of course limited, but they now apply to vast new areas of UK online space, including companies’ own web sites and promotional social networking activities.

At the other end of the enforcement spectrum, two brothers were recently prosecuted under the CPRs and given 13 month jail sentences for promising an “amazing snow-covered Lapland village” to the consumers of Dorset but only delivering “something that looked like an averagely-managed summer car boot sale.”

In most cases when the OFT gets involved it will seek, and be given, undertakings by traders not to engage in specific unfair commercial practices. The Purely Creative case shows that in cases where satisfactory undertakings are not forthcoming, the High Court is well up to the task of interpreting the CPRs according to the developing new principles of European law and coming up with sensible, practical answers.

Charles Swan
Advertising & Marketing

See Also:

NEW CONTROLS OVER COMMERCIAL BLOGGING

ASA RULING ON THE SIZE OF SMALL PRINT



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